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2014 (2) TMI 1206 - AT - Income TaxTDS u/s 194C - Non deduction of TDS - payment for sub-contract works - Held that - Since the payees / recipients i.e. G. Ramesh and Ramesh Kotian have already shown these amounts in their respective books of account audited under section 44AB of the Act; declared and offered the same to tax in their returns of income for the relevant period, thus by virtue of the amendment to the provisions of section 40(a)(ia) of the Act by insertion of the second proviso to section 40(a)(ia) of the Act w.e.f. ;1.4.2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee i.e. Sri G.Shankar of ₹ 2,69,21,500 and to Sri Ramesh Kotian of ₹ 1,54,75,000. This view of ours, is in accordance with the decision of the co-ordinate bench of this Tribunal in the case of Ananda Markala (2014 (12) TMI 613 - ITAT BANGALORE) wherein it was held that the insertion of the second proviso to section 40(a)(ia) of the Act should be read retrospectively from 1.4.2005 and not prospectively from 1.4.2013. In this view of the matter, the provisions of section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Sri G.Shankar of ₹ 2,69,21,500 and to Sri Ramesh Kotian of ₹ 1,54,75,000 since the object of introduction of section 40(a)(ia) of the Act is achieved for the reason that the payees / recipients have declared and offered to tax the payments received from the assessee in their respective hands. As regards the issue of non-furnishing of Form No.26A, we are of the view that since the second proviso to section 40(a)(ia) of the Act is held to be retrospective in operation w.e.f. 1.4.2005, similarly, Form 26A was to be filed for an assessee not to be held as an assessee s in default as per proviso to section 201 of the Act. In all fairness, the assessee in the period under consideration i.e. Assessment Year 205-06 could not have contemplated that such a compliance was to be made and therefore in the interest of equity and justice we set aside the order of the learned CIT (Appeals) and remit the matter to the file of the Assessing Officer directing the Assessing Officer to consider the allowance or otherwise of the expenditure claimed amounting to ₹ 4,23,96,500; being the payments made by the assessee to Sri G.Shankar of ₹ 2,69,21,500 and to Sri Ramesh Kotian of ₹ 1,54,75,000 after affording the assessee adequate opportunity to file Form No.26A and only after due verification of whether the aforesaid two payees / recipients have reflected the same receipts in their books of account and have offered the same to tax. In these circumstances, we hereby set aside the order of the learned CIT (Appeals) to the file of the Assessing Officer only for the limited purpose as directed above. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act due to non-deduction of tax at source under section 194C. 2. Applicability of the second proviso to section 40(a)(ia) retrospectively. 3. Requirement and implications of filing Form No. 26A. Detailed Analysis: 1. Disallowance under section 40(a)(ia) of the Income Tax Act due to non-deduction of tax at source under section 194C: The assessee, a Class I PWD contractor, did not deduct tax at source on payments made to two sub-contractors, Sri G. Shankar and Sri Ramesh Kotian, amounting to Rs. 4,23,96,500. The Commissioner of Income Tax (CIT) invoked section 263, finding the original assessment order erroneous and prejudicial to the interest of revenue. Consequently, the Assessing Officer (AO) disallowed the payments under section 40(a)(ia) for non-compliance with section 194C. 2. Applicability of the second proviso to section 40(a)(ia) retrospectively: The Tribunal considered whether the second proviso to section 40(a)(ia), which provides relief if the payee has included the amount in their income and paid taxes, applies retrospectively from 1.4.2005. The Tribunal, aligning with the decision in the case of Ananda Markala, held that the proviso should be read retrospectively. Since the sub-contractors had declared the payments in their returns and paid taxes, the Tribunal opined that section 40(a)(ia) should not be attracted. 3. Requirement and implications of filing Form No. 26A: The Tribunal addressed the CIT(A)'s stance that the assessee failed to submit Form No. 26A, which certifies that the payee has included the income in their return. The Tribunal noted that this requirement was not feasible for the assessment year 2005-06 as the form was introduced later. The Tribunal remanded the matter to the AO, directing verification of whether the sub-contractors had included the payments in their books and offered them to tax. The AO was instructed to allow the expenditure if the conditions were met, even if Form No. 26A was not initially filed. Conclusion: The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and remanding the case to the AO for verification of compliance with the second proviso to section 40(a)(ia). The AO is to verify the inclusion of payments in the sub-contractors' income and allow the expenditure accordingly. This judgment underscores the retrospective applicability of the second proviso to section 40(a)(ia) and the procedural flexibility regarding Form No. 26A for earlier assessment years.
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